Joint Committee on Capital Review meeting notice, agenda and minutes

              STATE OF ARIZONA
Joint Committee on Capital Review
STATE HOUSE OF
SENATE 1716 WEST ADAMS REPRESENTATIVES
PHOENIX, ARIZONA 85007
DON SHOOTER JOHN KAVANAGH
CHAIRMAN 2011 PHONE (602) 926-5491 CHAIRMAN 2012
PAULA A. ABOUD LELA ALSTON
ANDY BIGGS FAX (602) 926-5416 CHAD CAMPBELL
RICH CRANDALL STEVE COURT
LORI KLEIN http://www.azleg.gov/jlbc.htm NANCY MCLAIN
RICK MURPHY JUSTIN OLSON
DAVID SCHAPIRA ANNA TOVAR
** R E V I S E D **
JOINT COMMITTEE ON CAPITAL REVIEW
Thursday, October 4, 2012
2:30 P.M.
Senate Appropriations, Room 109
MEETING NOTICE
- Call to Order
- Approval of Minutes of June 26, 2012.
- DIRECTOR'S REPORT (if necessary).
1. ARIZONA STATE LOTTERY COMMISSION - Review of FY 2013 Building Renewal
Allocation Plan.
2. ARIZONA DEPARTMENT OF ADMINISTRATION
A. Review of Remaining FY 2013 Building Renewal Allocation Plan.
B. Review and Consider Approval of Bond Refinancing.
C. Consider Recommending FY 2013 Rent Exemptions.
3. ARIZONA STATE UNIVERSITY - Review of 4 Bond Projects.
4. CORPORATION COMMISSION - Review of Tennant Improvements.
The Chairman reserves the right to set the order of the agenda.
9/27/12
10/3/12
tls
People with disabilities may request accommodations such as interpreters, alternative formats, or assistance with physical accessibility.
Requests for accommodations must be made with 72 hours prior notice. If you require accommodations, please contact the JLBC Office
at (602) 926-5491.
STATE OF ARIZONA
Joint Committee on Capital Review
STATE HOUSE OF
SENATE 1716 WEST ADAMS REPRESENTATIVES
PHOENIX, ARIZONA 85007
DON SHOOTER JOHN KAVANAGH
CHAIRMAN 2011 PHONE (602) 926-5491 CHAIRMAN 2012
PAULA A. ABOUD LELA ALSTON
ANDY BIGGS FAX (602) 926-5416 CHAD CAMPBELL
RICH CRANDALL STEVE COURT
LORI KLEIN http://www.azleg.gov/jlbc.htm NANCY MCLAIN
RICK MURPHY JUSTIN OLSON
DAVID SCHAPIRA ANNA TOVAR
MINUTES OF THE MEETING
JOINT COMMITTEE ON CAPITAL REVIEW
June 26, 2012
The Chairman called the meeting to order at 9:48 a.m., Tuesday, June 26, 2012, in Senate Appropriations
Room 109. The following were present:
Members: Representative Kavanagh, Chairman Senator Shooter, Vice-Chairman
Representative Alston Senator Biggs
Representative Campbell
Representative Court
Representative McLain
Representative Olson
Absent: Representative Tovar Senator Aboud
Senator Klein
Senator Murphy
Senator Schapira
Excused: Senator Crandall
ARIZONA DEPARTMENT OF ADMINISTRATION - Review of Revised FY 2013 Building
Renewal Allocation Plan.
Mr. Stefan Shepherd, JLBC Staff, presented the Arizona Department of Administration’s (ADOA)
request for review of its FY 2013 Building Renewal Allocation Plan.
The JLBC Staff presented options to the Committee.
Mr. Shepherd responded to member questions.
Ms. Jean Clarke, State Procurement Administrator, ADOA, responded to member questions. Ms. Clarke,
in response to a request, will be sending members information regarding regions, adjustment factors, and
listed contractors.
Senator Shooter moved that the Committee give a favorable review to safety-related projects as agreed to
by the Chairman. The remaining items in the allocation plan will be considered subsequent to receipt of
additional information that addresses the Job Order Contract process. The favorable review included the
following provisions:
(Continued)
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1. ADOA notify the Chairman and JLBC Staff that they plan to spend less than $50,000 on an
emergency project. ADOA can proceed without Committee review.
2. If the emergency is $50,000 or greater, ADOA will request JCCR review.
3. The Chairman can allow ADOA to move forward with an emergency project of greater than
$50,000 without Committee review.
4. The Chairman will notify ADOA if he does not agree that the project is an emergency and will
request that ADC not proceed with the project.
The motion carried.
ARIZONA DEPARTMENT OF CORRECTIONS - Review of FY 2013 Building Renewal
Allocation Plan.
Mr. Stefan Shepherd, JLBC Staff, presented the Arizona Department of Corrections’ (ADC) request for
review of its FY 2013 Building Renewal Allocation Plan. They were appropriated $4.6 million and
would intend to spend most all of it on perimeter electronic security systems at 8 of their complexes.
The JLBC Staff presented options to the Committee.
Mr. Michael Kearns, Division Director, Administrative Services, ADC, responded to member questions.
Senator Shooter moved that the Committee give a favorable review to ADC’s FY 2013 $10,372,600
Building Renewal Allocation Plan with the provision that ADC report any change in the spending plan to
the JLBC Staff, including reallocations between projects and allocations from the contingency plan. The
favorable review also included the following provisions for the $173,636 emergency contingency
allocation:
1. ADC notify the Chairman and JLBC Staff that they plan to spend less than $50,000 on an
emergency project. ADC can proceed without Committee review.
2. If the emergency is $50,000 or greater, ADC will request JCCR review.
3. The Chairman can allow ADC to move forward with an emergency project of greater than
$50,000 without Committee review.
4. The Chairman will notify ADC if he does not agree that the project is an emergency and will
request that ADC not proceed with the project.
The motion carried.
ARIZONA STATE PARKS BOARD – Review of FY 2013 State Lake Improvement Fund Capital
Expenditures.
Mr. Art Smith, JLBC Staff, presented the Arizona State Parks Board FY 2013 State Lake Improvement
Fund (SLIF) capital projects plan totaling $1,500,000. He noted that the Lake Havasu City Fire
Department has recommended that the 4” water mains be replaced by 8” water mains at Lake Havasu
State Park to improve water flow to the parks fire hydrants at a cost of $623,300. Additionally, the Parks
Board is requesting $577,300 to provide to provide water and electricity to its 47 campsites. Both
projects at Lake Havasu would also select contactors using the Job Order Contract process. Further, the
Parks Board has allocated a total of $299,400 in SLIF monies for emergency building renewal repairs and
replacements.
(Continued)
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The JLBC Staff presented options to the Committee.
Mr. Smith responded to member questions.
Mr. Kent Ennis, Deputy Director, Arizona State Parks, responded to member questions.
Senator Shooter moved that the Committee give a favorable review of the Arizona State Parks Board’s
FY 2013 State Lake Improvement Fund capital projects totaling $1,500,000 with the provision that the
projects are ultimately approved by the Parks Board. The favorable review also included the following
provisions for the $300,000 emergency contingency:
1. The Parks Board notify the Chairman and JLBC Staff that they plan to spend less than $50,000
on an emergency project. The Parks Board can proceed without Committee review.
2. If the emergency is $50,000 or greater, the Parks Board will request JCCR review.
3. The Chairman can allow the Parks Board to move forward with an emergency project of greater
than $50,000 without Committee review.
4. The Chairman will notify the Parks Board if he does not agree that the project is an emergency
and will request that the Parks Board not proceed with the project.
The motion carried.
ARIZONA GEOLOGICAL SURVEY– Consider Recommending FY 2012Rent Exemption.
Mr. Stefan Shepherd, JLBC Staff, presented the Arizona Geological Survey (AZGS) request that the
Committee recommend to ADOA a rent exemption of $13,300 for FY 2012. The former Arizona
Department of Mines and Mineral Resources (ADMMR) occupied space at 1400 W. Washington Street.
When ADMMR was merged into AZGS in July 2011, AZGS never occupied the space at 1400 W.
Washington Street and instead consolidated ADMMR into their current space at 1520 W. Adams Street.
The JLBC Staff presented options to the Committee.
Mr. Shepherd responded to member questions.
Ms. Nola Barnes, General Manager, Building Planning and Services, ADOA, responded to member
questions.
Mr. Lee Allison, Director, Arizona Geological Survey, responded to member questions.
Senator Shooter moved that the Committee recommend to the Arizona Department of Administration a
rent exemption for FY 2012 for the Arizona Geological Survey in the amount of $13,300. The motion
carried.
APPROVAL OF MINUTES
Hearing no objections from the members of the Committee to the minutes of March 27, 2012, Chairman
John Kavanagh stated the minutes would stand approved.
Without objection, the meeting adjourned at 11:00 a.m.
(Continued)
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Respectfully submitted:
_________________________________________
Alanna Carabott, Secretary
_________________________________________
Leatta McLaughlin, Assistant Director
_________________________________________
Representative John Kavanagh, Chairman
NOTE: A full audio recording of this meeting is available at the JLBC Staff Office, 1716 W. Adams.
A full video recording of this meeting is available at http://www.azleg.gov/jlbc/meeting.htm.
(Continued)
DATE: September 27, 2012
TO: Representative John Kavanagh, Chairman
Members, Joint Committee on Capital Review
THRU: Richard Stavneak, Director
FROM: Jon Stall, Fiscal Analyst
SUBJECT: Arizona State Lottery Commission - Review of FY 2013 Building Renewal Allocation
Plan
Request
A.R.S. § 41-1252 requires Committee review of expenditure plans for building renewal monies. The
Arizona State Lottery Commission requests Committee review of its FY 2013 Building Renewal
Allocation Plan. Laws 2012, Chapter 295 appropriated $85,200 from the State Lottery Fund to the State
Lottery Commission to fund 100% of the building renewal formula in FY 2013.
Recommendation
The JLBC Staff recommends that the Committee give a favorable review of the commissions’ FY 2013
Building Renewal Allocation Plan.
Analysis
Building renewal appropriations provide for the major maintenance and repair of state-owned buildings.
Laws 2012, Chapter 295 appropriated a total of $85,200 in FY 2013 from the State Lottery Fund to the
commission for building renewal.
The commission operates out of 2 facilities; a 38,600 square foot state-owned building in Phoenix, and a
3,080 square foot leased building in Tucson. The Phoenix facility includes administrative offices, ticket
sales, and redemption centers. This request pertains only to the Phoenix facility.
The Lottery Commission is requesting review of their $85,200 appropriation for a project to upgrade
items housed in their ventilation system that do not comply with building codes. Total expenditures are
estimated at $110,000, and the commission plans to use $24,800 from its operating appropriation to pay
for costs not covered by the building renewal allocation. A 2006 building survey by a third party vendor
identified electrical and communications items housed in the building’s ventilation system that pose a fire
risk, such as substandard wires and electrical panels. The commission proposes replacing the violating
items with those designed with flame retardant properties.
STATE OF ARIZONA
Joint Committee on Capital Review
STATE HOUSE OF
SENATE 1716 WEST ADAMS REPRESENTATIVES
PHOENIX, ARIZONA 85007
DON SHOOTER JOHN KAVANAGH
CHAIRMAN 2011 PHONE (602) 926-5491 CHAIRMAN 2012
PAULA A. ABOUD LELA ALSTON
ANDY BIGGS FAX (602) 926-5416 CHAD CAMPBELL
RICH CRANDALL STEVE COURT
LORI KLEIN http://www.azleg.gov/jlbc.htm NANCY MCLAIN
RICK MURPHY JUSTIN OLSON
DAVID SCHAPIRA ANNA TOVAR
- 2 -
The submitted material provides additional detail for the project. The project is consistent with building
renewal guidelines and appropriations.
RS/JS:ac
STATE OF ARIZONA
Joint Committee on Capital Review
STATE HOUSE OF
SENATE 1716 WEST ADAMS REPRESENTATIVES
PHOENIX, ARIZONA 85007
DON SHOOTER JOHN KAVANAGH
CHAIRMAN 2011 PHONE (602) 926-5491 CHAIRMAN 2012
PAULA A. ABOUD LELA ALSTON
ANDY BIGGS FAX (602) 926-5416 CHAD CAMPBELL
RICH CRANDALL STEVE COURT
LORI KLEIN http://www.azleg.gov/jlbc.htm NANCY MCLAIN
RICK MURPHY JUSTIN OLSON
DAVID SCHAPIRA ANNA TOVAR
DATE: September 27, 2012
TO: Representative John Kavanagh, Chairman
Members, Joint Committee on Capital Review
THRU: Richard Stavneak, Director
FROM: Leatta McLaughlin, Assistant Director
SUBJECT: Arizona Department of Administration - Review of Remaining FY 2013 Building
Renewal Allocation Plan
Request
A.R.S. § 41-1252 requires Committee review of expenditure plans for building renewal monies. The
Arizona Department of Administration (ADOA) originally requested the Committee review its FY 2013
Building Renewal Allocation Plan. Laws 2012, Chapter 295 appropriated $10,372,600 from the Capital
Outlay Stabilization Fund (COSF) to ADOA in FY 2013.
At its June 26, 2012 meeting, the Committee favorably reviewed the safety-related projects as agreed to
by the Chairman, which totaled $3,847,600. This memo now addresses the review of the remaining
building renewal projects totaling $6,525,000.
Recommendation
The Committee has at least the following 2 options:
1. A favorable review.
2. An unfavorable review.
The proposed building renewal expenditure plan is consistent with building renewal guidelines and
appropriations. ADOA plans to use the Job Order Contracting (JOC) procurement method rather than a
traditional competitive bid for the majority of these building renewal projects.
Under either option, the JLBC Staff recommends the provision that ADOA shall report any change in the
building renewal spending plan to the JLBC Staff, including reallocations between projects. If there is
significant change of scope in the reallocation reported by ADOA, the JLBC Staff shall recommend
ADOA to request Committee review of the reallocation.
(Continued)
- 2 -
Analysis
Building renewal appropriations provide for the major maintenance and repair of state-owned buildings.
The building renewal formula takes into account the replacement value, age, and life-cycle of all
structures in the ADOA building system. A total of $10,372,600 is appropriated to ADOA to fund 39%
of building renewal formula in FY 2013. (These amounts exclude Department of Corrections facilities as
they received their own building renewal appropriation.) Of this amount, $3,847,600 was favorably
reviewed by the Committee at its June 26, 2012 meeting. The remaining projects up for review are listed
in Table 1. The majority of these projects will not be bid out and will instead be procured via the JOC
procurement process (see discussion below).
The following provides an overview of the remaining amounts allocated to different categories of
projects.
Major Building Services Projects
A total of $3,750,000 will be allocated to 6 different projects. Of this amount, $2,300,000 will be spent
on replacing cooling towers at the Capitol Mall office buildings, the Department of Health Service’s
(DHS) Arizona State Hospital, and the Department of Public Safety’s Forensic Sciences Laboratory.
HVAC system replacements will cost $750,000 at Capitol Mall office buildings. Boilers will be replaced
for $200,000 at the Pioneers’ Home in Prescott. The remaining $500,000 will replace power system
panels in mechanical rooms at Capitol Mall office buildings.
Building Shell/Interior Project
A total of $400,000 will be spent replacing carpet and flooring, which has become a safety hazard, at
Capitol Mall office buildings.
Infrastructure Projects
A total of $2,075,000 will be allocated to 3 projects. Laws 2012, Chapter 295 requires ADOA to use
$1,700,000 of the $10,372,600 building renewal appropriation to purchase a generator for DHS’s Arizona
State Hospital, which will provide an emergency power system for the hospital. Phase II of water
infrastructure repairs will be made at the Department of Juvenile Corrections’ Adobe Mountain and Black
Canyon Schools at a cost of $125,000. The remaining $250,000 will repair surface parking lots at Capitol
Mall office buildings.
Energy Conservation Project
A total of $300,000 will be allocated to 1 project to replace lighting at the Historical Society’s Tempe and
Tucson museums.
Job-Offer Contracting
At its June 26, 2012 meeting, the Chairman requested additional information addressing the JOC process.
ADOA uses the JOC process to procure pre-priced major maintenance and construction projects. Under
the JOC process, agencies submit the requirements for such projects to an automated system and select a
single JOC Contractor to provide a job order proposal to the agency. The proposal consists of the fixed-unit
prices for various components (e.g., labor costs, materials, equipment costs) multiplied by an
adjustment factor, which accounts for items such as business costs, economic factors, and a contract
administration fee. The agency then determines whether they approve or reject the job order price. This
process is used in lieu of a request for quotation sent to multiple bidders.
(Continued)
- 3 -
The JOC process is required for all mechanical/electrical and general contractor projects between $5,000
and $1,000,000 (the process is optional for some projects between $5,000 and $100,000). Projects above
$1,000,000 are to be bid out. Projects below the threshold are also required to use the request for
quotation process. Most of the projects in its building renewal plan would use the JOC process.
Table 1
Remaining FY 2013 Building Renewal Projects
Major Building Services Projects
ADOA Capitol Mall Cooling Towers Replacement $1,000,000
DPS Forensic Lab Chiller/Cooling Tower Replacement 900,000
ADOA Capitol Mall HVAC Replacement 750,000
ADOA Capitol Mall Physical Plant Power Replacement 500,000
DHS State Hospital Cooling Towers Replacement 400,000
Pioneers’ Home Boilers Replacement 200,000
Subtotal $3,750,000
Building Shell/Interior Project
ADOA Capitol Mall Carpet/Flooring Replacement $ 400,000
Infrastructure Projects
DHS State Hospital Generator Purchase $1,700,000
ADOA Capitol Mall Parking Lots Replacement/Repair 250,000
DJC Adobe Mtn. & Black Canyon Water Infrastructure Repairs 125,000
Subtotal $2,075,000
Energy Conservation Project
Historical Society Museums Lighting Replacement $ 300,000
TOTAL $6,525,000
RS/LMc:ts
(Continued)
STATE OF ARIZONA
Joint Committee on Capital Review
STATE HOUSE OF
SENATE 1716 WEST ADAMS REPRESENTATIVES
PHOENIX, ARIZONA 85007
DON SHOOTER JOHN KAVANAGH
CHAIRMAN 2011 PHONE (602) 926-5491 CHAIRMAN 2012
PAULA A. ABOUD LELA ALSTON
ANDY BIGGS FAX (602) 926-5416 CHAD CAMPBELL
RICH CRANDALL STEVE COURT
LORI KLEIN http://www.azleg.gov/jlbc.htm NANCY MCLAIN
RICK MURPHY JUSTIN OLSON
DAVID SCHAPIRA ANNA TOVAR
DATE: September 27, 2012
TO: Representative John Kavanagh, Chairman
Members, Joint Committee on Capital Review
THRU: Richard Stavneak, Director
FROM: Art Smith, Senior Fiscal Analyst
SUBJECT: Arizona Department of Administration - Review and Consider Approval of Bond
Refinancing
Request
Pursuant to A.R.S. § 41-791.02, the Arizona Department of Administration (ADOA) requests that the
Committee review and approve the refinancing of a Privatized Lease-to-Own (PLTO) agreement from
2001 and lease-purchase agreements, also referred to as Certificates of Participation (COPs), that were
issued in 2002 and 2004.
Recommendation
The JLBC Staff recommends that the Committee favorably review and approve the refinancing of the
PLTO and COP issuances with the stipulation that ADOA report back to the Committee on the final
estimates for interest rate, debt service schedules, costs, and estimated savings of the refinances after the
issuance.
At current interest rates, refinancing $62,130,000 in outstanding principal obligations is estimated to
result in interest savings of $7,756,900 over the duration of the financing period. FY 2013 interest
savings are expected to be $973,300 with ongoing average annual interest savings of $424,000.
Analysis
A.R.S. § 41-791.02(B and E) requires that a lease-purchase agreement be reviewed and approved by the
Committee before the agreement takes effect.
In order to take advantage of current low interest rates, ADOA is proposing to refinance its 2001 PLTO
agreement and COP issuances from 2002 and 2004. The 3 issuances will be refinanced into a single COP
issuance; the 2001 PLTO financed construction of the Department of Health Services (DHS) building, the
2002 COP issuance financed construction of the State Health Laboratory, and the 2004 COP financed
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1,000 prison beds in various facilities throughout the state. ADOA estimates savings of $7,756,900 from
FY 2013 until FY 2029, which takes into account approximately $600,000 in issuances costs for the new
COP.
By converting the 2001 PLTO into a COP, the DHS building will now be under a lease-purchase
agreement, as opposed to being owned by a developer, and then leased to the state. While a PLTO
usually requires a private entity to maintain the building until the life of the agreement is complete,
ADOA states that by converting this PLTO into a COP none of the legal requirements for maintenance
have changed. A private entity will continue to be responsible for the maintenance of the DHS building
through the end of the issuance in 2029. ADOA states that refinancing the 3 buildings into 1 COP is
more cost-effective, as the costs associated with financing a single issuance is less than the cost of
financing multiple issuances.
It is estimated that the new issuance is anticipated to reduce interest rates from 5.0% to 3.3% for the 2001
PLTO, from 5% to 2.46% for the 2002 COP, and from 5.25% to 1.77% for the 2004 COP. While the 3
projects will now be financed under 1 COP issuance, the repayment period for each project will remain
unchanged from the original financing. The final payment year for the 2001 COP will be 2029, the final
payment for the 2002 COP will be 2023, and the final payment year for the 2004 COP will be 2019.
Annual debt service under the proposed refinancing will be reduced by an average of (9.5)% over a 17-
year period. In FY 2013, the refinancing will reduce the $7,468,800 debt service payment to $6,495,500,
a savings of $973,300. In subsequent years, annual interest savings will average $424,000 annually. The
total debt service payment will range between $1.3 million and $7.3 million, as opposed to $1.5 million
and $7.9 million prior to refinancing.
RS/AS:tls
STATE OF ARIZONA
Joint Committee on Capital Review
STATE HOUSE OF
SENATE 1716 WEST ADAMS REPRESENTATIVES
PHOENIX, ARIZONA 85007
DON SHOOTER JOHN KAVANAGH
CHAIRMAN 2011 PHONE (602) 926-5491 CHAIRMAN 2012
PAULA A. ABOUD LELA ALSTON
ANDY BIGGS FAX (602) 926-5416 CHAD CAMPBELL
RICH CRANDALL STEVE COURT
LORI KLEIN http://www.azleg.gov/jlbc.htm NANCY MCLAIN
RICK MURPHY JUSTIN OLSON
DAVID SCHAPIRA ANNA TOVAR
DATE: September 27, 2012
TO: Representative John Kavanagh, Chairman
Members, Joint Committee on Capital Review
THRU: Richard Stavneak, Director
FROM: Ben Beutler, Fiscal Analyst
SUBJECT: Arizona Department of Administration - Consider Recommending FY 2013 Rent
Exemptions
Request
A.R.S. § 41-792.01D authorizes the Director of the Arizona Department of Administration (ADOA), on
recommendation from the Joint Committee on Capital Review, to grant a full or partial exemption from
the payment of state-owned rental fees if the agency has vacated its space or if an agency does not have
the financial resources to make the payment. ADOA requests the Committee recommend 2 FY 2013 rent
exemptions totaling $42,100 for ADOA and the Arizona Department of Education (ADE). The vacated
space will be occupied by other agencies for no net loss of rent.
Recommendation
The JLBC Staff recommends that the Committee recommend exemptions of $28,500 for ADOA and
$13,600 for ADE. As a result of these exemptions, there are corresponding rent increases of $28,000 for
the Department of Economic Security (DES) and $13,600 for the Department of Health Services (DHS).
Analysis
Effective October 1, 2012, 3,402 square feet of space at 1400 West Washington Street in Phoenix will be
reallocated from ADOA to DES.
Effective November 1, 2012, 1,471 square feet of space at 400 West Congress in Tucson will be
reallocated from ADE to DHS.
RS/BB:lm
STATE OF ARIZONA
Joint Committee on Capital Review
STATE HOUSE OF
SENATE 1716 WEST ADAMS REPRESENTATIVES
PHOENIX, ARIZONA 85007
DON SHOOTER JOHN KAVANAGH
CHAIRMAN 2011 PHONE (602) 926-5491 CHAIRMAN 2012
PAULA A. ABOUD LELA ALSTON
ANDY BIGGS FAX (602) 926-5416 CHAD CAMPBELL
RICH CRANDALL STEVE COURT
LORI KLEIN http://www.azleg.gov/jlbc.htm NANCY MCLAIN
RICK MURPHY JUSTIN OLSON
DAVID SCHAPIRA ANNA TOVAR
DATE: September 27, 2012
TO: Representative John Kavanagh, Chairman
Members, Joint Committee on Capital Review
THRU: Richard Stavneak, Director
FROM: Leatta McLaughlin, Assistant Director
SUBJECT: Arizona State University - Review of 4 Bond Projects
Request
A.R.S. § 15-1683 requires Committee review of any university projects financed with revenue bonds.
Arizona State University (ASU) requests Committee review of $59.9 million in bond issuances to fund 4
projects. This amount includes $40.4 million for system revenue bonds and $19.5 million for University
Lottery revenue bonds. The 4 projects include construction of a new multi-use facility, Information
Technology (IT) infrastructure improvements, a library renovation, and refunding a student housing bond.
Recommendation
The Committee has at least the following 2 options:
1. A favorable review of the 4 projects.
2. An unfavorable review of the 4 projects.
Under either option, the JLBC Staff recommends the following provisions: 1) all projects are ultimately
approved by the Arizona Board of Regents (ABOR), and 2) the following standard university financing
provisions:
Standard University Financing Provisions
• A favorable review by the Committee does not constitute endorsement of General Fund appropriations to
offset any revenues that may be required for debt service, or any operations and maintenance costs when
the project is complete.
• ASU shall provide the final debt service schedules for the projects as soon as they are available.
(Continued)
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Analysis
The $59.9 million in bond issuances includes new construction, upgrades, renovations, and a refund. Of this
amount, $35.2 million will be for new construction, $8.1 million will be for IT upgrades, $3.1 million will be
for renovations, and $13.5 million will be for a bond refund.
Financing
The total $59.9 million for the 4 projects will be issued in 2 separate bonds in the winter of 2012/2013 and
the spring of 2013. Of this amount, $40.4 million will be issued as a system revenue bond, which includes
estimated issuance costs of $1.3 million. The remaining $19.5 million will be issued as a University Lottery
revenue bond, which includes estimated issuance costs of $485,000. In addition, $7.5 million in private gifts
and $12.5 million from bookstore revenues will be used to finance a portion of the new construction project.
So far, $2.7 million in private gifts have been received, and the remaining $4.8 million have been pledged.
The projected repayment of both bond issuances is expected to cost $99.6 million. The debt service will be
primarily paid with $34.2 million from tuition, $17.4 million from auxiliary funds, $20.6 million from
student housing fees, and $27.4 million from Lottery revenues. (See Table 1 for a summary of each bond’s
financing terms.)
Table 1
ASU Bonding Financing Terms
$40.4 Million Issuance
(System Revenue Bond Projects)
$19.5 Million Issuance
(University Lottery Bond Projects)
Projects: 1. $18.8 million Multi-Use Facility – Tempe campus
2. $8.1 million IT upgrades – all campuses
3. $13.5 million bond refund – Tempe campus
1. $16.4 million Multi-Use Facility – Tempe campus
2. $3.1 million library renovations – Tempe campus
Issuance Date: Winter of 2012/2013 Spring of 2013
Rating: Aa3 (Moody’s)/AA (S&P) A1 (Moody’s)/AA- (S&P)
Interest Rate: 3.99% 4.29%
Term: 30 years 30 years
Total Debt Costs: $65.4 million, including $1.3 million issuance costs $34.2 million, including $485,000 issuance costs
Debt Service
Payments: $915,200 in FY13 (interest only), $2.6 million in FY14-
FY35, $1.0 million in FY36-FY43
$546,900 in FY14 & $820,300 in FY15 (interest only), $1.2
million in FY16-FY35, $1.0 million in FY36-FY43
Payment Source: $27.4 million from tuition, $17.4 million from auxiliary
funds, and $20.6 million from student housing fees
$27.4 million, or 80%, from Lottery revenues and $6.8
million, or 20%, from tuition; Laws 2009, Chapter 289
requires the debt service to be paid with up to 80% Lottery
revenues and at least 20% university revenues.
Debt Ratio
Increase: 0.14% – from 5.5% to 5.64% 0.06% – from 5.5% to 5.56%
Construction Costs
Total project costs are estimated at $78.1 million, which does not include issuance costs. Table 2 provides a
brief description of each project along with the project’s total cost, direct construction cost, square footage,
and direct construction cost per square foot.
Table 2
ASU Bond Projects
Project Total Cost 1/ Direct Cost Sq. Ft.
Direct Cost/
Sq. Ft.
Multi-Use Facility – Tempe campus $54,500,000 2/ $40,650,000 131,400 $309
IT Infrastructure Upgrades – all campuses 8,000,000 7,700,000 N/A N/A
Library Renovations – Tempe campus 3,000,000 1,800,000 15,000 120
Student Housing Bond Refund – Tempe campus 12,640,000 N/A N/A N/A
Total $78,140,000 $50,150,000 146,400 $429
____________
1/ These amounts do not include issuance costs.
2/ This amount includes $18.5 million in system revenue bonds, $16.0 million in University Lottery bonds, and $20.0 million in gifts and
bookstore revenues.
(Continued)
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Multi-Use Facility - Tempe Campus
ASU is planning to build a 131,400 gross square foot, 5-story Multi-Use Facility at the Tempe campus for a
cost of $54.5 million. Of this amount, $18.5 million will be funded with system revenue bonds (plus
estimated issuance costs of $275,000), $16.0 million will be funded with University Lottery revenue bonds
(plus estimated issuance costs of $405,000), and $20.0 million will be funded with gifts and bookstore
revenues.
The project will be located at College Avenue between East 7th Street and East 6th Street, where there is
undeveloped property that isn’t currently being utilized. This facility will house classrooms, office space,
study space, a 200-seat auditorium, and retail space. The School of Sustainable Engineering and the Built
Environment (civil, environmental, sustainable, and construction engineering and the Del E. Webb School of
Construction) academic programs will occupy 56,150 gross square feet. University classroom and
recruitment space will occupy 21,450 gross square feet. A 53,800 gross square foot retail space will house a
bookstore. The bookstore space will include infrastructure and limited finishes, and Follett, ASU’s
bookstore management partner, will be responsible for tenant improvements.
The university wants to construct this new space in order to accommodate growth of the School of
Sustainable Engineering and the Built Environment and to provide a new home for the Del E. Webb School
of Construction, which plans to double its undergraduate enrollment and to launch a doctoral degree
program.
At its September 2011 meeting, the Committee most recently reviewed an ASU classroom building that had
a direct construction cost per square foot of $298. The direct construction cost per square foot of this project
is $309, which is slightly higher than last year’s project.
During the budget process, ASU will be requesting a $501,000 annual General Fund appropriation to pay for
the operations and maintenance costs of this new facility, excluding the retail space. The operations and
maintenance estimated costs of $347,000 for the retail space will be paid with auxiliary funds.
IT Infrastructure Upgrades – All Campuses
Because ASU has been experiencing increased outages and has difficulty keeping pace with system demands
and bandwidth, it plans to upgrade IT infrastructure at all of its campuses for a cost of $8.0 million. This
project will be funded with an $8.0 million system revenue bond (plus estimated issuance costs of $120,000).
Issues that could threaten IT security, reliability, and access to network systems will be addressed. The
projects will include upgrading a cable plant and security infrastructure, installing security hardware, and
increasing wireless networking capacity. ASU did not provide a direct construction cost per square foot for
this project because this project would not affect square footage.
Library Renovations – Tempe Campus
ASU is planning to renovate 15,000 gross square feet of the Hayden Library on the Tempe campus that was
originally constructed in 1966. The renovations will include 2 new Learning Laboratories (classrooms,
tutoring centers, and student collaboration space), group study and breakout spaces, and support spaces.
Included in the renovations will be 300 seats, along with enhancements to mechanical, electrical, and
plumbing systems, fire protection, asbestos abatement, and date connectivity. The university wants to
renovate this space due to the dated physical conditions and also to accommodate continued student growth.
The project will be funded with a $3.0 million University Lottery revenue bond (plus estimated issuance
costs of $80,000).
At its September 2011 meeting, the Committee most recently reviewed a renovation project for ASU
academic space that had a direct construction cost per square foot of $106. The direct construction cost per
square foot of this project is $120.
(Continued)
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Student Housing Bond Refund – Tempe Campus
In July 2003, the South Campus Group Housing (SCH) issued a $13.4 million bond to construct Adelphi
Commons II, which is a 79-unit, suite-style dormitory adjacent to the Tempe campus. SCH was formed by
ASU as a 3rd party financing entity to issue this debt. The bond was issued with an average annual interest
rate of 5.5% for a term of 30 years. Currently $12.6 million in principal (plus $10.6 million in interest) is
outstanding. ASU plans on issuing a $12.6 million system revenue bond, (plus estimated issuance costs of
$865,000) to refund SCH for the outstanding amount because the bond can currently be refunded without
ASU having to pay a premium and because interest cost savings can be realized. The term of the bond will
be for the remaining 23 years with an estimated average annual interest rate of 3.93%. The total estimated
savings over the life of the bond is $3.1 million.
University Lottery Bond Projects
The $3.0 million library renovation project and $16.0 million of the $54.5 million Multi-Use Facility project
will be financed with University Lottery revenue bonds. Various statutes authorize ABOR to enter into
lease-to-own and bond transactions up to a maximum of $800.0 million to pay for building renewal projects
and new facilities. ABOR is required to allocate $376.0 million of the $800.0 million for the Phoenix
Biomedical Campus. Of the remaining $424.0 million in proceeds, ABOR plans to allocate $16.0 million to
ASU’s School of Construction and $136.0 million to each of the 3 universities for building renewal, deferred
maintenance, and new construction projects.
At this time, ASU has $71.3 million of its $136.0 million building renewal/new facilities allocation
remaining and is now requesting to issue $3.0 million to renovate the Hayden Library. The university is also
requesting to issue its entire $16.0 million School of Construction allocation to build a new facility to house
the Del E. Webb School of Construction, among other functions.
Under Chapter 287, the annual debt service payments were designed to be paid from at least 80% Lottery
revenues and up to 20% state university system revenues. The interest-only debt service payment from
Lottery revenues for this issuance would be $437,400 in FY 2014 and $656,300 in FY 2015. These amounts
would be paid from $1.5 million and $9.3 million in uncommitted Lottery revenues that would otherwise
revert to the General Fund in FY 2014 and FY 2015, respectively. After interest-only payments for 2 years,
this issuance would annually divert about $1.0 million in Lottery monies from the General Fund for 20 years
and then about $800,000 for the remaining 8 years.
RS:LMc:ts
(Continued)
DATE: October 3, 2012
TO: Representative John Kavanagh, Chairman
Members, Joint Committee on Capital Review
THRU: Richard Stavneak, Director
FROM: Jon Stall, Fiscal Analyst
SUBJECT: Arizona Corporation Commission - Review of FY 2013 Tenant Improvements
Request
Pursuant to A.R.S. § 41-1252, the Arizona Corporation Commission requests Committee review of the
scope, purpose, and estimated cost of $351,100 for a tenant improvement project at their 1200
W. Washington building. The agency requested on Wednesday, October 3, 2012 to be on the agenda.
The FY 2013 General Appropriation Bill (Laws 2012, Chapter 294) appropriated $1,955,200 from the
Utilities Regulation Revolving Fund (URRF) to the Corporation Commission to fund construction and
staffing of an additional large hearing room in FY 2013. Of this amount, $350,000 is to be used to
construct a hearing room. In addition, the agency plans to use $1,100 of their staffing allotment for
construction purposes for a total of $351,100.
Recommendation
The Committee has at least the following 2 options:
1. A favorable review of the project.
2. An unfavorable review of the project.
Analysis
Laws 2012, Chapter 294 appropriated $1,955,200 from URRF to the Corporation Commission for
construction, equipment, and staffing costs associated with adding a large hearing room at their 1200 W.
Washington facility. The Corporation Commission is requesting review of $350,000 of the $1,955,200
appropriation, which is to be used to construct and equip the hearing room and an adjoining break room.
A.R.S. § 41-1252 requires that the Committee review the scope, purpose, and estimated cost before the
release of monies for construction of a new capital project costing over $250,000.
STATE OF ARIZONA
Joint Committee on Capital Review
STATE HOUSE OF
SENATE 1716 WEST ADAMS REPRESENTATIVES
PHOENIX, ARIZONA 85007
DON SHOOTER JOHN KAVANAGH
CHAIRMAN 2011 PHONE (602) 926-5491 CHAIRMAN 2012
PAULA A. ABOUD LELA ALSTON
ANDY BIGGS FAX (602) 926-5416 CHAD CAMPBELL
RICH CRANDALL STEVE COURT
LORI KLEIN http://www.azleg.gov/jlbc.htm NANCY MCLAIN
RICK MURPHY JUSTIN OLSON
DAVID SCHAPIRA ANNA TOVAR
- 2 -
The project’s purpose is to address growth in large utility rate cases, which the agency currently hears in 1
main hearing room at the 1200 W. Washington building. From FY 2008 to FY 2011 the average duration
of these cases increased from 16 months to 20 months, which exceeds the Administrative Code mandate
of only 12 months. The agency expects the project to reduce the average duration of large rate cases
below the mandated amount and address delays for other cases.
The project would convert existing office space to a hearing room and break room. The total space
consists of 2,472 square feet, of which the hearing room comprises 2,262 square feet and the break room
210 square feet. The hearing room would seat 175 audience members and 20 hearing participants.
ADOA estimates the project to cost $351,100, which is further broken out in the table below.
Tenant Improvement Project
Electrical $108,500
Walls, Ceilings and Doorways 91,500
Carpeting 35,000
Project Management 34,800
Fire and Life Safety 17,800
Contingency (5%) 15,100
HVAC, Plumbing, Concrete,
and Furnishings 48,400
Total Project Cost $351,100
The submitted material provides additional detail for the project. The project is consistent with capital
project guidelines and appropriations.
RS/JS:ts